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Bernanke Says Bailouts of Banks ?Unconscionable? (Update2) - Bloomberg.com



March 20 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said government bailouts of large financial firms are “unconscionable” and must be ended as part of a regulatory overhaul following the worst financial crisis since the 1930s.
“It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” Bernanke said today in a speech in Orlando, Florida. “If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”
Congress is considering a resolution mechanism for financial firms that are so large or interconnected to other institutions that their failure could damage the financial system. A plan by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, would allow the Federal Deposit Insurance Corp. to liquidate a large firm after a panel of bankruptcy judges determines the company is insolvent and with approval of the Fed, FDIC and Treasury Department.
The Fed chairman has faced criticism from Congress for bailouts that he said were intended to prevent a possible depression. Lawmakers including Dodd have criticized the Fed’s purchase of $29 billion of securities in March 2008 to facilitate the merger of Bear Stearns Cos. with JPMorgan Chase & Co., and loans to keep American International Group Inc. from default.
All large financial firms rather than just big banks should be subject to stronger regulation, Bernanke told bankers gathered for the Independent Community Bankers of America convention. Shareholders and creditors should not be protected from losses in any plan, he said.

 

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March 18, 2010
What the Stock Market Cycles are Saying Now!!
by Jim Curry

In my article/post from back in mid-January, I noted that several of the key mid-term cycles that I tracked were due to roll over to the downside. Those cycles were the 45-day (nominal 10-week) and 90-day (18-20 week) waves. Back then, I noted that the prior 45-day cycle target to the 1148.16 - 1172.38 SPX CASH area would act as firm resistance to that upward phase; the market peaked right into this resistance zone (1150.45 SPX CASH, on 1/19/10), and then triggered a sharp decline into the month of February with the same. The correction into the larger 90-day bottom was expected to be, at minimum, 4-5% off the top - though the statistical average was noted as closer to 6.2%.
Also back in January, we took a look at technical action - as technical non-confirmations will usually accompany mid-term cyclic tops and bottoms. As noted back in January, the shorter-term McClellan Summation index was diverging from price action - which was indicative of a 45 and 90-day cycle top forming. However, the fact that the larger advance/decline was confirming the action suggested that higher highs were likely to follow that 45/90-day correction. I will address the current technical state of the market in the latter part of this article.
On Tuesday, 2/16/10, the SPX confirmed a 45-day cycle bottom in place - and then also confirmed an initial upside target with the same to the 1107.08 - 1118.74 range. Shortly thereafter, the index then indicated an additional upside target to the 1128.20 - 1146.80 level. The first of these targets was hit on 2/18/10, with the higher-end target satisfied on 3/5/10.
In addition to the above, the average rally with the 45-day cycle - within the above pattern - had been in the range of 9.3% or better off the bottom, which made the suggestion that the SPX would push as high as the 1143 figure or better before it topped. In terms of time, that average rally lasted 31 trading days before peaking - which suggested that this cycle would try and hold off it's next top until on or after the third week of March (which we are now into).
With all the above then said and noted, let's take a look at the current mid-term cyclic model, via the table below:

From the above table, you can see that the smallest wave - the 45-day component - is now 28 trading days along from it's 2/5/10 bottom. Based upon the position of each of the larger waves, this 45-day cycle is expected to be very bullishly-translated to the right (which simply means a peak well past the midway point). In other words, the top for this component should still be out there somewhere, and may attempt to form sometime later this month. Here is a look at the updated Hurst cycle/channels, which encloses this 45-day wave:

You can see on the Hurst channels that the forecast is looking for a strongly right-translated rally with the 45-day wave - and then a short decline into very early April. The one thing to note is that the channel forecast itself is looking for a bottom on the earlier side than the nominal 45-day wave actually is; the nominal wave is shown in the lower pane in dashed lines. The channel forecast is looking for an earlier low - simply based upon the fact that recent rotations of this cycle have been averaging closer to 37-38 trading days. This is due to the larger bullish trend that we are currently in. You can see that the larger channel (the one that encloses the 90-day wave) is moving firmly to the upside at the present time - and will limit any near-term downside from the smaller 45-day component.
Once the 45-day cycle does top in the next week or two, then what we should see some retracement into the next bottom for the same. In terms of time, this decline will last something like 3-5 days off the top - and should make an attempt at the 18-day moving average or lower (wherever that moving average is at the time); that decline could move as low as the blue 45-day moving average. Having said that, the actual peak for this cycle could well come from higher numbers than already seen, such as the 1180's on the SPX, which, by the way, is also the current upside target from the larger 90-day component (to 1182.36 - 1213.04 SPX CASH).
Stepping back just a bit, you can see that the larger 90-day component is projecting higher prices into late-April or into the month May. In terms of price, as noted above there is a current upside target to the 1182.36 - 1213.04 range for this cycle, though I would not be surprised to see this target range overshot. In terms of time, the average rally with this 90-day wave, when coming off the pattern of a 'higher-low/higher-high', has normally averaged around 51 trading days before the following peak for the cycle was set in place. With that, the inference from the statistical/pattern analysis is in agreement with the channel forecast, in that the probabilities are better-than-average for this wave continuing to post higher numbers into 4/20/10 or later. With this said and noted, any short-term decline phases, if and when seen, should be looked upon as buying opportunities - in the anticipation of a move into the above price and time range.
The Big Picture
For the bigger picture, not only are the 45 and 90-day waves heading higher at the present time, but the larger 180-day wave also confirmed the February bottom as it's last low. That means that this cycle had to have also registered the pattern of a 'higher-low/higher-high' at the 2/5/10 bottom. And, when seen in past history of this 180-day wave, the average rally that followed was in the neighborhood of 27% from trough to peak. If seen on the current rotation, this would indicate that the SPX could push up to as high as the 1326 level before any larger top is in place with this component.
In terms of time, when the above pattern has been seen in the past with the 180-day cycle, the normal minimum upward phase into the following 180-day top was in the range of 109 trading days before peaking - with the average rally actually being closer to 145 days. If the SPX were to see the minimum rally here, then it won't top out prior to 7/7/10; if it sees it's average rally of 145 days, then it's peak could hold off until 8/30/10 or later. Based upon the position of the larger 360-day wave, my assumption is that it will probably peak somewhere closer to it's low-end statistical expectation (i.e. a late-July peak).
Stepping back even further, the larger 360-day (18 month) cycle is in the process of going over a very large top at the present time. On the chart below, you can see the approximate location of each of the 180 and 360-day waves:

The 360-day cycle is now viewed as 260 days along - currently regarded as neutral to slightly bullish. Recent rotations of this wave have been averaging closer to 400 trading days. With that, it is next due to low-out around November of 2010 - which is also where the smaller 180-day wave is set to bottom.
Going back to May of 2009, this 360-day cycle had confirmed an initial upside target to the 965.93 - 1032.41 region; this projection was satisfied way back on 7/23/09. At the same that the first target was hit, the cycle then confirmed a secondary objective to the 1151.97 - 1263.45 range, which was finally met on 3/12/10 (last week). This cycle has now confirmed what should be a final upside target to the 1196.37 - 1314.05 level for the SPX. This same target 'range' also has the highest-odds of peaking this particular wave, key to note in the weeks and months ahead.
In taking a side look at some Elliott-Wave (which I like to do on longer-term timeframes), I currently see the move off the March, 2009 bottom as a very large ABC corrective rally, with wave 'A' of the move in progress - and with wave 'B' ending up as the next 180/360-day combination low, ideally made on or around November of this year (plus or minus). That decline should retrace 38-50% of the move from the 666.79 low to whatever high that ends up being seen on the current upward phase. Take a look at the following chart:

Once the 180/360-day cycles bottom out in the Autumn months, then a 'B' wave decline should give way to a final 'C' wave to the upside into the Spring of 2011. An added influence to the upward phases of these waves will be the 'presidential cycle' - which tends to low-out in the fourth quarter, before turning solidly higher into the following year (2011).
If all of the above does play out as noted for the bigger picture, a Spring, 20011 peak would top both the 360-day and 4-year cycles - and would then set the index up for a sharp five-wave decline into the 2012-2014 timeframe, where the combination of the larger 4 and 36 year cycles would then bottom-out. Although this is a high degree of speculation at the present time (I will have to make adjustments as we move forward), the above chart 'suggests' how the action could play out on a longer-term time scale in the next few years.
As far as technical action at the present time, both the advance/decline index and the McClellan Summation indexes have taken out their January peaks - which has confirmed the uptrend and also suggests higher price levels should continue to materialize in the weeks/months ahead. However, if we move into the Summer months and were to start seeing divergences in the same at that time, then we would have to be on the lookout for what could be a major top forming with the 180/360 day cycle components. More on this in a future article.


Jim Curry
Market Turns Advisory
http://cyclewave.homestead.com/

 

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Saturday, March 20, 2010

THE Most Important Chart of the CENTURY


The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.



This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury’s latest Z1 data, the complete report is posted below:

z1

On page two of that report is the following table showing the Growth of Non Financial Debt:



I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:



Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.



Below is a chart of Federal Net Outlays, parabolic and again headed straight up:



Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at SwarmUSA.com.

That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA’s total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.

It doesn’t have to be like that, in fact it’s a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!

It’s difficult to see this from inside the box, so let’s look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.

To “save the day,” the IMF and central bankers around the world rushed in to “rescue” the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland’s infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this “debt.” Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, “Central Bankers Pound Sand!”

Thus they now control their own destiny, their future productive efforts still belong to them.

It’s easy to see from the outside looking in, but it’s not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at SwarmUSA.com.

To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.


L'iplicazione politiche sociali dell'articolo sono interessanti ma ho paura poco produttive...

 

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http://www.thepatternsite.com/CPIUpdate.html

 

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IMPRESSIVE ACTION WHEN LOOKING AT THE DATA
By Charles Payne, CEO & Principal Analyst

3/24/2010 1:38:20 PM Eastern Time


It's one thing for the market to move higher after a big news event like the passage of healthcare reform, which generated a sigh-of-relief-it-could-have been-worse rally, but today's action is much more impressive. The market has fought off a couple waves of weakness sparked by legitimately bad news. Mortgage applications, durable goods, new home sales, and petroleum inventories were disappointing; in some cases, very disappointing. The picture that continues to emerge is one of a sluggish economy that may have hit bottom but still has a chalk outline... it's not moving. The market is off a bit but should be off much more. In fact, I kind of wouldn't mind if it were off more but then again I've always liked bouts of weakness and market dips.

Durable goods can be a volatile economic data point so I wouldn't fret that it was slightly below expectations, although the results don't point to a big enough shift in confidence to alter the economy.

New Home Sales and Mortgage Applications
By: David Urani, Research Analyst

The new home sales report out this morning was certainly disappointing, hitting an annual rate of 308,000 homes which is a new record low. Of course, anytime we see a record low, we have to view it negatively, but we have to say that it was not too particularly surprising, as the consensus was for a run rate of only 315,000 homes; there was also likely a negative impact from bad weather which can be reflected in the better performance in the West versus other regions. Regionally, annually adjusted sales rates were down 20.0% in the Northeast, 18.0% in the Midwest, 4.6% in the South, and up a whopping 20.8% in the West. Pricing did show a rise month to month, although that could be a function of a higher proportion of homes sold in the West.

It has become eerily apparent that home buying demand is simply well in the gutter as home sales are at record lows despite there still being a nationwide tax credit on home purchases. That being said, it is natural that new home sales would be fairing worse than those of existing homes considering new homes have to compete against inexpensive foreclosure sales; although existing home sales are also on a decline, they are still well above the low set in January 2009.

In the next couple of months, we expect new home sales numbers to go higher as a result of improvements in the weather as well as last-minute buying before the tax credit runs out on April 30. However, we will be viewing such sales increases as temporary and will be cautious looking into the environment after the tax credit goes away (although another extension of the credit is not out of the question). Even with the tax credit in place, however, sales are in the doldrums and there may yet be more headwinds soon as the Fed ends its purchases of mortgage securities which is likely to send mortgage rates higher.

On another note, Treasury Secretary Geithner noted yesterday in a meeting about the fate of Fannie Mae and Freddie Mac that the government has a "key role" to play in the future of the housing market. One thing's for sure, the mortgage market as it stands will no longer be the same once the fate of Fannie and Freddie is decided. Could Geithner's comments, and a ruling body that we now know is fiercely liberal, foreshadow a full nationalization of Fannie and Freddie? Could the housing market be the next healthcare?

Petroleum Inventories
By: Conley Turner, Research Analyst

The build in crude oil inventories as reported by the U.S. Energy Information Administration points to the fact that the demand for the commodity is just not picking up in tandem with the much heralded growth in the economy. Crude oil inventories rose by 7.245 million barrels in the past week. This compares with the consensus expectation of a 1.67 million barrel increase.

This report showcases the fact that the current price of oil is disconnected to most fundamental underpinnings of supply and demand. In fact, the rise in oil over the past few months has more to do with a positive correlation developed at the height of the selloff with the rise in the broader equity markets. Also impacting the commodity's price today is the rising value of the U.S. dollar versus a basket of other currencies, including the euro. Concerns about Greece's debt situation and a downgrade of Portugal's debt by Fitch are both having an adverse impact on the value of the euro. The price of oil is for the most part inversely correlated with the value of the dollar.

Is there any Gallop Left in Polo Shares?
By: Brian Sozzi, Research Analyst

Since our last institutional note disseminated February 2, Polo Ralph Lauren (RL) shares have appreciated to the tune of 9.2%, outperforming the 6.8% advance for the S&P 500 Index. Not too shabby a performance we reckon considering the modest concerns that emanated from the 3Q10 earnings conference call. In particular, Ralph Lauren's increasing investment to build out its infrastructure in Southeast Asia (China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, and Thailand) after assuming control of its license on January 1, 2010 (paid $200 million for license), led to worries that upfront spending would diminish EPS upside in coming quarters.

Please visit www.wstreet.com to read remainder of the piece.

Final Note

The market is consolidating gains and acts like it wants to move higher, but we have the luxury of being patient.

 

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SAVING AND SPENDING, QUITE A TALE (FINAL EDITION)
By Charles Payne, CEO & Principal Analyst

3/30/2010 9:25:39 AM Eastern Time

Currently, former Liberian strongman Charles Taylor is on trial at The Hague for 11 counts of war crimes. Taylor, once held in U.S. custody and on the verge of extradition to Liberia for embezzling one million dollars, was one of the more brutal dictators in Africa in the past two decades. He became a protégé of Col. Gaddafi and was backed by Libya when he launched his armed uprising in his home country in 1998. In 1997, Taylor was elected president and remained in power until 2003. I remember reading an article about children soldiers years ago when the author asked a kid why he was fighting for Taylor. The young boy, not yet a teenager replied "Taylor came to my village and killed everyone including my parents, he is the best." This is the most morbid example of not being able to beat them so why not join them.

When people capitulate to momentum and join in simply because of the power of a movement they add to that power The thing is that growing power can be fleeting or crumbled when ultimately tested.

Listening to most market mavens, more and more are throwing in the towel and getting long equities if for no other reason but the unstoppable nature of the market. I take into account shifting of attitudes among professionals and novice investors. I've seen pros get pushed around by market momentum as often as I've seen non-pros come to the party late. It all plays out over a longer time period than one would imagine or remembers from past examples. Right now, there are market justifications including a natural turn in the business cycle, which has actually been hampered by excessive government intervention. The weak dollar has played a pivotal role for large multinational companies that have led the stock rally parade. There are reasons for the market being higher, but I felt better when there was more bearishness.

Some things have to come to a head for the domestic story to justify this rally longer-term The Fed will have to raise rates, although I think that's a 2011 issue as housing continues to languish and employment makes a skittish rebound. The big question is how long a jobless recovery can buoy the overall economy. Interestingly, the jobs to population dilemma has been an ever increasing problem since the 1970s. Employment growth in raw numbers peaked with population growth in the 1970s (21.2 million against 30.8 million), but the best decade for job growth against population growth came in the 1980s when EG was 84.8% of PG. The 1980s also saw unemployment rates of 9.7% and 9.6% in 1982 and 1983, respectively. Overall job growth has been sliding since the 1970s.

Part of the reason for this slide is the much ballyhooed productivity miracle that is making a difference in how many people need to be hired and how much income they can command. Even though only 5.1 million jobs were created from 2000 to March 2009 (the 1950s saw 7.2 million) the U.S. economy grew from $10.0 trillion to $14.0 trillion annually.
Productivity aside, demographics will play a role in job demand but not soon enough to trigger a substantial decrease in the unemployment rate. So in addition to productivity gains it is assumed that people with jobs will have to spend more and everyone might have to dip into savings.

The item that stood out most to me from yesterday's personal income and spending data was the continued decrease in savings as a percentage of disposable personal income. Consumer spending is up five months in a row but savings are declining fast. Savings as part of DPI tumbled to 3.1% in February from 3.4% in January and 4.0% in December. This could also explain the decline in mutual fund investing, too. One of the positive takeaways in 2009 was how swiftly households worked off debt and cut back on spending. The fourth quarter of 2009 was down seven consecutive quarters for household debt. Consumer credit has also come down, although a large part of the story is a lack of availability as banks have raised standards and cut access.

Still, this is a very indebted nation that needs credit to move an economy that is 2/3 driven by consumer consumption and where the government has a very ambitious plan to spend the country to prosperity. While U.S. households cut home mortgage debt by $164.6.0 billion and consumer credit by $112.7 billion, state and local government doubled borrowing to $108.6 billion while the federal government borrowed $1.44 trillion, up from $1.23 trillion in 2008. Note, in 2007 the federal government borrowed $237.1 billion up from $183.4 billion in 2006.

After the 2001 recession consumers increased savings, but almost immediately investors began seeking a way to get back the money they lost in the stock market. Once it became universally accepted that real estate was the way to go personal savings swooned. This time around Americans don't see a savior since by now many have been burned by the stock and real estate markets. There are many ways to measure savings; I used personal savings after DPI in the chart below. In 2009, those savings surged to $471.5 billion from $286.4 billion in 2008.

This all gets me back to the notion of financial justification for the current rally. Companies have been running lean, benefiting from the weak dollar (by the way, the most recent business confidence numbers for Europe increased on excitement over the weak euro), and up on the notion it could be worse...look at the European Union.

Absent Easter Bunny
By: Brian Sozzi, Research Analyst

I think this morning's chain-store sales data was disappointing. In early trades, shares of specialty apparel retailers and department stores are lower. Per my comments last week, it was vitally important to have chain-store sales bounce back strongly from a +0.1% increase for the week-ended March 20. Chain-store sales, according to the ICSC/Goldman report, were +0.6% for the week-ended March 27 (to be fair, data does not capture Sunday, March 28). Why was a bounce so important? Well, it was the last full week of shopping ahead of the Easter holiday. From our vantage point weather was generally favorable, and in our mall runs traffic and bag count appeared robust. However, let's keep in mind what's in those bags...merchandise that is still being promoted by specialty retailers. Although the promotions are lesser in magnitude relative to Easter 2009, traffic inducing promotions remain in use. In the second half of the year, we are hearing promotions will be scaled back, and that's when the sales trends could begin to get dicey for some companies if the jobs situation (employment prospects in addition to stronger wage growth) does not fundamentally turn (by fundamentally turn, I mean excluding census workers, jobs that are not temporary and therefore instill a sense of confidence among households, and jobs that are not paying 50% less to a person than they were making in 2007). It's pivotal to get this positive traction in jobs as savings are being depleted to bring down still high household leverage ratios and supplement unemployment benefits.

Economic predictions aside, while March same-store sales released next week are likely to be ok, reflecting still favorable comparisons and the Easter calendar shift, I continue to be concerned that valuations for many in retail have gotten ahead of the risks to earnings that exist in the second half of 2010.

 

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GLOOMY INSIDE AND OUTSIDE
By Charles Payne, CEO & Principal Analyst

3/30/2010 1:28:35 PM Eastern Time


It's rather dreary outside as rain continues to pound the Northeast, which has had enough weather to warrant a fantastic spring and summer. I guess this monsoon is appropriate as it certainly reflects how homeowners must be feeling. If anyone was warranting of a need for a break it's homeowners. They, too, deserve a fantastic spring and summer. For the most beaten down cities in the nation, that ray of sunshine actually came in January. Seasonally adjusted, 12 cities in the 20 city Case Shiller Index enjoyed a month over month increase in value. While I'm not sure it will spark a replay of 1849, California saw impressive gains. Los Angeles values increased 1.8%, and San Diego 0.8% Overall, the report wasn't great shakes, but if pressed we could find a couple of silver linings.

If housing prices can gain traction around the country, it would do wonders for consumer confidence. Of course, the biggest boost to confidence comes from jobs, and we are one day closer to the most anticipated jobs report we've witnessed in a long time.

As for consumer confidence, there was a bump in the latest report. It was much needed after February's shortfall, and even provided stocks with a short-lived bounced. Present conditions reached its highest rating since last May, and expectations climbed off the canvass. The problem is that these readings aren't good and continue to underscore frustration and lack of confidence among consumers.

Final Note

Although I'm not happy with the pullback in the market it's not totally unexpected, not only is such angst par for the course but the market is extended. This is a good time to chill out on the sidelines.

 

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NO ABOUT FACE IN EQUITIES
By WSS Research Team

3/31/2010 1:28:21 PM Eastern Time


By: Brian Sozzi, Research Analyst

If you would have told me on Monday morning that the ADP employment data would miss consensus by 63K, showing another month of weakness in the jobs market, and that the ISM number would also come up short, I would have said equities would get a royal pounding. Mind you, these hypothetical happenings mused about on Monday would be in addition to the uncertainty in the markets prior to the Fed waving adios to its $1.25 trillion mortgage gobbling plan (for now...) and a raft of uber bulls prognosticating 300K of job creation on the headline non-farm payrolls report due out when the market is closed on Friday.

Well, the action in the markets today is surprising as the ADP report badly missed (sent futures sharply lower), the ISM headline missed, and the rosy outcomes for non-farm payrolls by economists are being revisited. At least some forecasts for being reviewed as many economists are maintaining their estimate but noting "downside risk." Talk about creating a pat-one's-self-on-the-back scenario; non-farm payrolls see growth of around 300K, it's a win and if they miss, still a win because it was noted that downside risk existed.

Nonetheless, in the aggregate, the economic reports today portray the U.S. economy as one that has turned into smoother waters, but those seas are not devoid of waves. The undercurrents causing those surface waves are structural changes in the labor force, a healthcare bill that is already causing management teams of corporate America to rethink expansion strategies (and take charges to earnings), and risks to future growth as government stimulus wanes. Mid-term elections might actually be supporting equities as perceived lost seats by Democrats would go to fiscally conservative Republicans. Perhaps, as a result, we could get agreement on the direction of our capitalistic system.

Surely there must be more to the market's action today. I think one explanation could be the lack of panic in the mortgage market amid the Fed's exit. We have not seen the spike in rates as many anticipated as delinquent loan buyouts by Fannie and Freddie (backed by Uncle Sam) may just fill the void being left by the Fed in the medium-term. No spike in rates, no perceived huge cost increase at the moment for households (mortgage rates) and businesses (debt issuance)...or so goes the rationale.

Economic Data

ISM

For the sixth straight month, the ISM headline index was above 50 (above 50 indicates growth). The Institute for Supply Management-Chicago indicated that its business barometer slipped to 58.8 in March, from a nearly five-year high of 62.6 in February. The figure fell below the 60.8 figure that was expected. All seven of the barometer's sub-indexes showed expansion, the first time that has happened since June 2006.

* The new orders index revealed a sixth straight month of recovery, standing at 61.8 in March, from 62.2 in February.
* Businesses built up inventories for the first time since October 2008. The inventory index surged to 52.4, from 42.4 in February.
* Prices paid index was at an elevated 66.6 in March. February's 67.7 reading was the highest since September 2008.

Further Color on ADP Data
By: David Urani, Research Analyst

Today's ADP report showing a 23,000 job loss was quite telling, and in fact in my view it gives as good of a look into the job market as we're going to get for March. That's because the BLS report on Friday is going to be swayed well to the high side by two factors that the ADP doesn't account for: weather and the Census. The bad news is that both of those factors are just temporary. The weather factor relates to the severe snowstorms in February, and the resulting rebound in March. Meanwhile, the 2010 Census efforts have yielded thousands of temporary jobs lasting half a year at best. Consequently, the 23,000 jobs lost in the ADP report give more of a "true" representation of the job market, and that truth is employment is still deteriorating.

Breaking down the ADP's components, we see that the goods-producing sector lost 51,000 jobs during the month while the services sector gained 28,000 jobs. One potential positive of this result is that the service sector is more than four times the size of the goods sector, and this marks the second month in a row it has expanded. Looking at employment by size of firm, there did not appear to be any disparity between changes in employment in small, medium, and large businesses.

Analyst Notes

By: Brian Sozzi, Research Analyst

Will those Easter Bunny Baskets be Full?

The Easter bunny was slumped over with ears between his furry little legs last year. Amidst the sharp pullback in economic activity, consumers sent the Easter bunny to the cage, limiting their purchases of seasonal goods. Unbeknownst to many, the stock market was nearing a trough, coiled to spring into what has officially become one heck of a rally in risky assets. However, households were grappling with the real constraints (market is forward minded, after all) of employment concern, shredded net worth, and severe damage to personal balance sheets as asset values declined and leftover revolving and non-revolving debt stood prominently. It's for these reasons, as well as the shift in the timing of Easter and seemingly improved economic dynamics that March 2010 comparable store sales for the retail sector, set for issuance on April 8, are likely to be strong.

Some Fun on a Rainy Day

Yesterday I had the great pleasure of having a one on one meeting (in addition to Robert Vill, VP of Finance and Treasurer) with William McComb, CEO of Liz Claiborne (LIZ). For someone who is trying in earnest each and every day to chart a path to smoother waters for a huge apparel company, which mind you is no longer reliant on the Liz Claiborne brand, to garner two hours plus of time was a very nice opportunity.

(to read full version of each, please visit www.wstreet.com)


By: David Silver, Research Analyst

Ford Not Zooming Ahead today

* Shares of Ford (F) are trading lower today following the sale of more than 360 million warrants from the UAW's VEBA account. At the beginning of 2010, Ford transferred its healthcare costs to the UAW and paid half of its $13.0 billion payment in company stock. These warrants were sold today at $5.00 and are equivalent to one share of Ford at $9.20. The UAW gets all of the financial compensation, but Ford shares are down as a result of the dilution from the added shares.

By: Conley Turner, Research Analyst

Hydrocarbon Musings

The price of oil continues its upside momentum in the session as the U.S. dollar index surrenders ground against the value of a basket of other international currencies, including the euro. The rebound in the broader equities markets from the session lows is also proving to be a supportive factor for oil prices today.

The disappointing ADP numbers gave market participants pause as it recorded net job losses as opposed to a gain as was expected by the market. The whole premise behind the robust market rally was that the economy was improving dramatically. However, this number suggests that a little more economic moderation is probably more prudent. Expectations of GDP growth this year should moderate between 3% and 4%. At this juncture, however, all attention is now focused on the Department of Labor's jobs number that is set to be released on Friday. The market has, however, looked past today's ADP number as momentum is clearly in favor of additional upside.

Technically, crude prices have remained relatively steady despite an intraday swoon immediately after the release of the inventory numbers. At this point, prices are poised to solidly break through the $83/$84 a barrel level on the upper range of the trading band and should see follow through in the wake of the current upside momentum. As we have observed in similar actions in the past, this kind of buying begets more buying and hence a move up in the price of oil.

By: Carlos Guillen, Research Analyst

Techs Barely in the Green

Tech stocks have been inching higher for the last three trading sessions despite not so encouraging economic data. The Philadelphia Semiconductor Index (SOX) is barely in the green so far during today's trading session, after finishing yesterday's session also barely in the green. Today there has been a number of positive news coming from tech land, which continues to support the notion that 2010 will be a strong year for the sector.

Last night's news coming from Applied Materials (AMAT) in reference to its outlook for its fiscal 2010 year has definitely had a positive effect in tech trading today. Applied Materials' management announced that it now expects revenue to rise 60% during fiscal 2010, and represents a significant change from management's prior guidance provided on February 17, when it said it expected net sales to grow by more than 50%. According to management, it is seeing strong signs of growth across all of its business units.

We believe that original design manufacturers are improving their utilization rates and, as such, they will look to expand capacity, particularly for new technologies. Foundries are investing aggressively for their transition to 32-nanometers and for capacity additions at 45-nanometers.

Also encouraging was that a Standard & Poor's analyst raised its debt rating for National Semiconductor (NSM) as a result of three quarters of improving revenue growth and five quarters of improving profit margins.

Today after the close, Micron (MU) is expected to report its financial results for its second fiscal quarter. We believe the company will deliver better than expected revenue and earnings results as the memory backdrop has been improving better than most expect. In particular, we believe that demand for DRAM has been better than expected, and average selling prices continued to climb, which should bode well for Micron's results. We believe demand for both DRAM and NAND Flash memory will continue their strong momentum through 2010.

 

[gipa69]

ECONOMIC SIGNS COMING ON STRONG
By Charles Payne, CEO & Principal Analyst

4/1/2010 2:14:44 PM Eastern Time


Stocks jumped out of the gate with a fair amount of vigor but seemed to have been spooked by something. I think that stocks were spooked by the ISM report on manufacturing. The report was so good that it was a little unnerving. Exports posted their best reading since September 1989, but input prices surged to 75 from 67 month over month, the highest level since August 2008. I think that the Street paused because employment dipped to 55.1 from 56.1, although the component was above 50 for the fourth consecutive month for the first time since 2007 (50 represents growth). It really is amazing that manufacturing is positioned be the savior in an economy where it was forsaken for the service sector. The market is naturally jittery, so it's normal for midday profit-taking, but I have a feeling there could be lift into the close as speculators get long before the close.

Auto sales are coming in about as expected but generating much buzz. This ISM report was almost too good to be true. Now, let's hope we can say the same about tomorrow's jobs data.

Auto Sales Speed through March
By: David Silver, Research Analyst

Auto sales have been rolling in today and for the most part they have been a little less than stellar. Ford (F) reported sales that increased about 40% year over year, and while that was a great number, a good portion of the increase came from fleet sales and was also buttressed by much higher incentives. That being said, the company's market share was about 16.5%, and continues to improve. General Motors reported that total sales (accounting for different selling days) increased about 16% year over year, which was far below our expectations. The "core 4" brands (Chevrolet, Cadillac, GMC, and Buick) are definitely benefiting from the increase in marketing spend, with Buick seeing sales increase 69.0% year over year. The Buick LaCrosse may be the biggest benefactor of Toyota's (TM) problems, as its commercials of late has pitted the LaCrosse against the Lexus ES. The LaCrosse saw its sales increase about 223% year over year and about 197% through the first three months of the year (compared to the first three months of 2009). Toyota's numbers are just in and there was a WHOPPING 35% increase year over year; so much for the recalls affecting future sales.

So we are seeing some big year over year increases, but we have to remember that March of 2009 was near the bottom of the auto industry. General Motors and Chrysler limped back to Congress asking for money and sales were dismal. It is also when the stock market reached terra firma and began the year plus rally that we have enjoyed. A good portion of the increase from this month was fueled by incentives that are at the highest levels in years. Following the cash for clunkers program last year, the automakers have been avoiding offering incentives, instead vying for full price sales. However, following the Toyota debacle, most automakers implemented aggressive incentives to keep customers coming into the show room.

The government also signed into law a new Corporate Average Fuel Economy (CAFÉ) standard that brings the 35.5 miles per gallon threshold to 2016. In 2007, the new CAFÉ standards said that the average fleet had to have an average mile per gallon of 35 by 2020; the average right now is 27 mpg. The move is expected to cost an extra $1,000 per vehicle, but is expected to be recovered by consumers in three years. This is going to be another tax on the automakers which will then be passed onto consumers. President Obama estimated that tougher requirements will save 1.8 billion barrels of oil over the life of vehicles sold under the program covering the 2012-16 model years. He said this would be the equivalent of taking 58 million cars off the road for a year.

Refer to our website, www.wstreet.com later today for a full reaction to today's results.

Construction Spending

There was also construction spending, which declined more than expected.

* Residential: $258,491,000,000 down from $264,000,000,000
* Non-Residential: $587,742,000,000 down from $593,902,000,000

Brand Equity, What is It?
By: Brian Sozzi, Research Analyst

Built over time through consistent product execution and marketing, brand equity is an intangible asset to a retailer. If you disappoint the consumer with products or are forced to markdown goods that were too inflated from the start, brand equity could quickly evaporate. Let's examine the chain of reaction:

Product disappoints-->markdowns ensue-->less cash flow derived from hard assets-->reduced valuation by the marketplace for a publicly traded company

Companies that have tarnished their brand equity, within the context of my institutional coverage universe, include Movado (MOV) and Abercrombie & Fitch (ANF). These companies took their eye off of the ball on product, failed to adapt, and are now paying the price in the form of non-existent pricing power. Conversely, Coach (COH) and Tiffany (TIF) maintained strong brand equity throughout the recession by not discounting and delivering on customer service.

 

[gipa69]

TAKE THIS JOBS REPORT AND LOVE IT? (FINAL EDITION)
By Charles Payne, CEO & Principal Analyst

4/5/2010 10:05:44 AM Eastern Time

Wall Street was looking and hoping for a homerun on Friday and it





got a bunt single. The good news, like deprived fans of a perennially losing sports team, some will cheer this bunt single like a homerun from Albert Pujols...in the bottom of the ninth inning..in game seven of the World Series. There are pros and cons but some of the former could be the latter. The headline number of 162,000 was below the consensus of 190,000 (I think that the whisper consensus was north of 250,000), but the shortfall was mostly from Census hiring which came in well short of expectations.

The initial reaction saw equities move higher and the dollar get stronger. Considering that there will be more than one million hires for the Census everyone thought 160,000 Census jobs would be reasonable. Proof of government ineptness; I can't wait for healthcare to kick in.

Upticks

* Manufacturing: +17,000, up 45,000 in the first quarter of 2010
* Construction: +15,000 after averaging losses of 72,000 over the past 12-months
* Retail: +14,900
* Healthcare: +27,000
* Temporary: +40,200
* Census: +48,000
* Leisure: +22,000
* Government: +39,000
* Household survey: +264,000
* January revised to +14,000 from -26,000
* February revised to -14,000 from -36,000

Downticks & Negatives

* Information: -12,000
* Financial Services: -21,000
* Long-term unemployed (27-weeks+): +414,000 to 6.5 million
* Part-time because economic reasons: 9.1 million
* Discouraged workers: +309,000 year over year to 1.0 million
* Average hourly earnings: $22.47, -$0.02

Temporary, Census, and government jobs accounted for 79% of jobs created in March so while many will argue a job is a job; there is a different impact to the economy from sustained jobs. On that note, I believe that this post-recession job market will be different. I think that the transition from temp to permanent jobs will be much slower than in the past.

In fact, on Friday I asked a top executive at Adecco if there was any legitimacy to my theory and she said "absolutely." Adecco (the largest staffer in the world) is devising new programs to take advantage of the permanent demand in temp workers. I think that part of the reason for this is the healthcare law, which tries to curb businesses from taking advantage of temp job loopholes but will come up short. Yet, in the process goose higher temp workers because they have to work limited hours. The pay is limited in these kinds of jobs.

"Considered a fool because I dropped out of high school"- Biggie Smalls

Pay is an issue. Average hourly wages actually decreased year over year. Then consider this, the best improvement in the unemployment rate happened for people that dropped out of high school. The unemployment rate for that niche of Americans improved 7%; on the other end of the spectrum unemployment for college grads inched up 0.2% and the high school grad segment saw their unemployment rate increase to 10.8% from 10.5%. A job is a job, but some pay better than others...no foolin.

Summary

I'm still worried about how many people have abandoned the system, they've given up. There is a record amount of people out of work longer than 27-weeks. I just think that we are going to have a permanent underclass of formerly proud contributors to the American economy. Unemployment among men stands at 10.0% but it's 8.0% for women. So, if we strip out stuff from this jobs report that feels like gap-stops we could take solace there are nibbles in the job market. I think that employers don't have any more room to cut and will cautiously hire, but there is no sense of urgency.

Moreover, healthcare reform, cap and trade, and additional taxes (Verizon announced that it has to take a $970.0 million hit from the new healthcare law) will keep businesses sitting on their cash.

President Obama took the typical victory lap after the jobs report but tempered his celebration because he understands this isn't the kind of environment that encourages businesses to take chances. The President did give credit to stimulus and other programs which I find interesting considering at this point building a cause and effect relationship also means underscoring the terrible inefficiency of the spending program. Speaking at a manufacturing plant, in what was in effect a commercial for his programs, the Commander and Chief stumbled when a women asked why raise taxes at this time to enforce his healthcare insurance plan.

The response was classic as the question was never answered but talking points were repeated. Here they are in order:

o America is the only big country where millions don't have healthcare coverage.
o There is a moral imperative as some companies aren't big enough or generous enough to provide healthcare.
o There is no safety net as COBRA has expired for many people.
o Insurance companies are evil as they switch coverage and have lifetime limits.
o Cost of healthcare is out of control.
o Reforms protect the consumer.
o The new law will save by cutting waste, fraud, and subsidies to the insurance industry.

Toward the end he tried to return to the question:

Finally saying "it is true" that additional taxes "we think are fair" will be used, he incorporated Warren Buffett as an example of someone that should be paying Medicare taxes on unearned income. To compare a household making $300,000 to the third richest man in the world and suggest investment gains from such a household are somehow "unearned" and deserving of being taxed is silly.

There was more talk about the deficit inherited and all of the other things we've heard ad nauseum. But, the question was never answered. That's because the answer is yes, this is a terrible time to tax corporations, small businesses, and especially people with the resources to make investments that materialize into real and sustained job growth. No, there wasn't Armageddon the day the bill was signed into law but the ball got going. For the President to joke about how fears were unfounded is unfortunate and odd. The White House and environmentalists pound into our brains as they reach for our wallets every day that action must be taken yesterday. If we don't act now to stop the earth from heating up one degree in the next 100 years it will be Armageddon.

Could you imagine a cigarette commercial where a high school track star smokes a cigarette, then positions into the starting block, and dashed to an easy victory and a banner says: "Win the Race, Smoke Cigarettes."

Or how about this one. A boiler room calls up an apartment dwelling family and says they can get them in a house for $400 a month for a couple of years then the rate increases but by then the house will be worth so much it won't matter.

It took 17 minutes to evade the question and still there was no answer. That's because the law is going to be an economic backbreaker and a drag on employment for a long time to come. I watched the weekend talk shows and some described the employment report as "solid" or suggested it was like the healthcare fight and a big win for the Administration. I don't know how people that should know better continue to try and fool the public. The only thing one could say about the jobs report is that it was better but it was mediocre. After the trillions of dollars and all the programs and the promises, people expect more. The stock market doesn't care as long as it can massage the expectations game.

The implications are clear, it's going to be an uphill struggle with the press giving out pats on the back to hollow victories while Main Street remains mired in the muck.

This week there aren't many economic reports or corporate earnings releases. It's this kind of backdrop that usually reveals the true soul of the market. Stocks will trade more or less through the will and conviction of investors, unencumbered or manipulated by news that can be spun and twisted like a funhouse mirror. Ride the wave even if you see through the hype. I'm not saying, and haven't been saying, drink the Kool-Aid but just dance to the beat until it's time to hit the exits.